Treasury Secretary Janet Yellen said that it is important for the U.S. to get its fiscal house in order, as President Biden pushes an additional $4 trillion in spending on infrastructure and social programs.
“We need to pay for some of the things that we are doing,” Ms. Yellen said at a Tuesday event.
She said there’s a decent amount of space for additional spending because of an extended period of low interest rates.
“But we have an aging population, we’ll see rising spending on Social Security and Medicare, rising health care costs — we need to make sure that deficits stay small and manageable so that the country’s on [a] sustainable fiscal course,” Ms. Yellen said at an event hosted by The Atlantic.
Ms. Yellen and other members of Mr. Biden’s administration are pushing his $2.3 trillion infrastructure package and $1.8 trillion “families” plan, which includes additional money for child care and paid leave, as necessary spending to position the U.S. for long-term competition with countries such as China.
The White House estimates that the hefty price tag would be covered over time through additional revenue from tax increases, including a hike in the U.S. corporate tax rate from 21% to 28% and tax increases on higher-income households and investors.
Ms. Yellen said changing marginal income tax rates for individuals doesn’t have a huge effect on economic growth in either direction.
“We’ve exempted some of the normal return to investment from heavy taxation, and raising taxes mainly hits the extraordinary return to capital, which seems to have very little impact on investment,” she said.
The Treasury Department reported last month that the federal government ran a record $1.7 trillion deficit for the first six months of the budget year that ends Sept. 30.
Revenues for March increased 13% compared to a year ago but spending nearly tripled, sending March’s deficit to $660 billion.
Congress passed Mr. Biden‘s $1.9 trillion coronavirus relief package in March, rushing direct payments and other benefits out the door to millions of Americans.
Senate Minority Leader Mitch McConnell of Kentucky signaled this week that Mr. Biden is unlikely to get any Republican support for his $4 trillion agenda.
Senate Republicans have offered their own $568 billion counterproposal on infrastructure that is more narrowly tailored to traditional infrastructure projects like roads and bridges.
Republicans say they won’t agree to increase individual and corporate tax rates to pay for the plans, saying that hiking taxes as the economy is still inching out of the coronavirus pandemic would hamstring the economy and deal a blow to small businesses.
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